Can I 1031 exchange my share of a property sold in a partition action?

A partition sale is still a sale of your undivided interest, and that interest is real property

Reg. section 1.1031(a)-3(a)(5)(i) lists "co-ownership" beside fee ownership, leaseholds and easements as real property for section 1031. Your tenancy-in-common share of a rental is relinquished property in its own right, and section 1031(a)(1) asks only that you held it for investment and exchange it for like-kind real property.

A judge ordering the sale does not change that. Partition is a remedy between co-owners; the court sells for them, not from them, so there is no condemnation that would bring in section 1033. The cotenant who filed the complaint and the one who fought it stand in the same place: each is paid for a share and each decides alone what to do with it.

For the voluntary version, see splitting title so each heir picks cash or a 1031 and a TIC group splitting up. A cotenant who buys the others out at the sale is a purchaser on that side; using 1031 proceeds to buy out a co-owner covers the limits.

In Illinois the officer who sells also distributes the money, as the court directs

Under 735 ILCS 5/17-105 the court declares the parties' interests and, if the premises cannot be divided "without manifest prejudice", orders a public sale, fixes a value, and may not approve a sale "for less than two-thirds of the total amount of the valuation". The officer files a report within 10 days under section 17-118, and "upon confirmation of the sale" delivers the conveyance. That conveyance starts your 45 and 180 days.

Section 17-119 then has the proceeds "distributed by the person making the sale, as directed by the court, to the persons entitled thereto". Costs, including a reasonable fee for the plaintiff's attorney, are apportioned among the parties under section 17-125. The phrase as directed by the court is your opening: the distribution order can name the intermediary's account for your net share.

In Florida the money is paid into court first, and heirs property adds a buyout before any sale

Under chapter 64, if the commissioners report that partition "cannot be made without prejudice to the owners", section 64.071 lets the court order a public auction with "the money arising from such sale paid into the court to be divided among the parties in proportion to their interest". A commissioners' sale must be reported, approved and "a conveyance ordered before any conveyance pursuant to the sale is made". Section 64.081 charges each party a share of costs and attorney fees in proportion to its interest and lets the court pay them from the sale money.

Where the property is heirs property under section 64.202, the court has it appraised under section 64.206, and section 64.207 lets the cotenants who did not ask for a sale buy out those who did at that value. For the selling cotenant a buyout is still a sale of a share, and still exchangeable if the intermediary is in place before it closes.

Get the distribution order to pay your share to the intermediary before the registry holds it

Under Reg. section 1.1031(k)-1(f) you are in constructive receipt of money "credited to the taxpayer's account, set apart for the taxpayer, or otherwise made available". Funds the clerk holds for you after confirmation are at least arguably set apart for you, and a disbursement cheque in your name settles the question against you.

Paragraph (g)(4)(v) treats the intermediary as a party to the sale when your rights are assigned to it and all parties are notified in writing on or before the transfer. In a partition those parties are the purchaser, the officer or commissioners and the court. No ruling was found on partition proceeds held in a court registry, so the safest course never lets the registry hold your share at all.

• Exchange agreement signed and assignment filed before the court confirms the sale.
• Written notice served on the purchaser, the selling officer or commissioners, and the court.
• Proposed order directing your net share to the intermediary's account, with the case number given to the intermediary.

Worked model: three siblings, a $900,000 sale, and one sister who exchanges

Hypothetical round numbers. Three siblings own a rental duplex equally; one sues for partition, and the court confirms a $900,000 sale with $60,000 of costs and fees apportioned equally. Each net share is $280,000. Two siblings take cash. The third, with a $100,000 basis in her third, has a $180,000 gain to defer.

Her share goes from the sale straight to the intermediary under the distribution order. Within 45 days of the conveyance she identifies replacement property costing at least $280,000, and replaces any share of mortgage paid off at the sale with new debt or cash. If she wants real estate without another co-owner, a Delaware statutory trust interest can qualify under Rev. Rul. 2004-86; it is illiquid, gives her no say over management or sale, and can lose principal. The court sets the fee split, so ask your CPA to rerun these figures on the order in your own case.